Saturday, 20 June 2015

The price of freedom. Can we afford an unconditonal basic income?

This blog has previously scrutinised the
case for a universal basic income and how it might play
out in practice. But in a sense these are subsidiary to a more fundamental
issue– namely how could a basic income be financed? An unconditional income for
everyone might be theoretically
desirable, a sympathetic sceptic would object, but what’s the point in
speculating about how it could work when the astronomical costs of implementing
it render such speculations idle fantasy? In any event, through austerity,
society is furiously paddling in the opposite direction.

Firstly, it should be remembered that a basic income would
likely save lots of money in certain areas. It would mean the abolition of many
social security benefits and the end
of the current obsession with checking up on people’s work seeking activities.
No job diaries, no Work Programme, no Work Capability Assessment. There
wouldn’t be any ‘benefit cheats’ under a basic income, because if the money
comes without conditions, it’s impossible to cheat.

In addition, there would be less direct savings, too. I
think a basic income would quickly produce a healthier society, both physically
and mentally. The space, choices and ‘de-pressurisation’ it would afford, would
lead to a smaller financial burden on public health services and fewer drug
prescriptions. If the current neo-liberal capitalist society is, in essence, a
social problem generating machine (and
one which rudely lumbers society with endless disturbances to deal with), basic
income is a problem reducer. Fewer problems, less expense.

But, even if all this is borne in mind, a universal basic
income would seem, on the surface, to be monumentally expensive. In 2009, the
economist Harry
Shutt estimated, based on figures from the UK Citizen’s Income Trust, that
the cost of a basic income in Britain was equivalent to an income tax rate of
57% or “around double the current basic rate of tax and national insurance”.
The economics editor of the UK’s Channel 4 News, Paul Mason, believes, on a rudimentary
calculation, that a subsistence level basic income of £6,000 a year would cost
£290 billion. This contrasts with a current UK ‘welfare bill’ of £167 billion
or 23% of government spending (memo to the British public: nearly
half this amount goes on pensions). Mason factors in the benefits of a
basic income: no tax relief needed for those on low or moderate incomes and
lower health spending, but concedes that a “fiscal
gap would be closed through raising tax – so this is not a cheap or easy
solution”.

And while there are other kinds of taxes that can be
utilised – a land value tax or a financial transactions tax for example –
closing this fiscal gap invariably centres on one suspect, income tax.

And in the Mason case, we are talking about an income floor
type of basic income. Wouldn’t the more generous kind of basic income,
US$30,000 or £20,000 per person, be decisively beyond the bounds of
affordability?

But it’s interesting that if you put the question of
financing the basic income to the people that have thought most deeply about it,
the Swiss group, Generation
Basic Income, they come up with a very different solution. And Generation
Basic Income aren’t proponents of a half-hearted basic income either. They
advocate what might be called, ‘basic income max’ – an annual rate of around £21,000 for every
adult and half that amount for children. They will be taking that proposal into
a referendum on the issue in Switzerland in 2016.

One of Generation Basic Income’s spokesmen, Enno Schmidt, is
adamant that a universal basic income should
not be funded out of income tax. “Whoever wants to fund basic income with
income tax, has not understood it,” he says.*

Schmidt’s argument is that a basic income funded from
increased income tax would be passed on in prices of goods, thus producing an
endless demand for a greater basic income and generating spiralling inflation. Moreover,
funding a basic income through income tax will reinforce the impression of
those with well-paying jobs subsidising those without this income. “The people
who earn money with their work will say: we work and pay our labouriously
earned money to others who are lazy,” Schmidt argues.

His answer is that a basic income should be granted through an
annual tax-free allowance and funded through a consumption tax, the equivalent,
I guess, of VAT in the UK or the sales tax in the US. A consumption tax,
incorporating the financing of the basic income, would, Schmidt estimates, need
to be set at around 50% of prices. This is obviously much higher than it is at
present – VAT is currently 20%, in the UK, for example.

Schmidt believes that, with the introduction of a ‘basic
income max’ for everybody of £20k annually, prices, including wages, would fall
dramatically. But with the introduction of the basic income consumption tax,
prices would rise again to their original level. “Prices remain with this tax
as high as they were for the consumer,” he says.

His argument is that consumption tax is a fair way of
funding the basic income because how much a person contributes is determined by
how much they ‘take’ in consumption. “The consumption tax is not unjust,” he
says. “Whoever buys a lot, pays a lot for basic income elsewhere,” he says.
Whoever takes a lot of performance from others for their benefit, contributes
greatly to the basic income.”

I can certainly see the immense problems that ensue from
trying to fund basic income from income tax. Over and above everything, this
method involves paying for basic income in mammoth tax rises, before the
benefits of unconditional income can be seen. They have to be taken on faith.

The consumption tax method of funding basic income is new
and, I confess, I don’t understand all its ramifications. Two issues do
immediately spring to mind, however. One is that consumption taxes are,
nowadays, regressive – everyone, the billionaire and the homeless person, pays
them at the same rate. In the past, (in the UK in pre-EU days for example),
luxury items had a larger tax rate attached to them. Should a consumption tax
for a basic income have graduated rates for more expensive goods?

The other question that arises is whether this kind of
arrangement would lead to an enforced frugality? Because many people would deny
themselves consumption, and thus paying the accompanying tax, if that’s where
it would mostly be applied. Would a basic income, ironically, put basic goods
out of the reach of most people? It’s important to remember that basic income
would not, automatically, redistribute income. There would still be immensely
rich people on the basis of their wage income and ownership of assets. Huge
inequality could remain.

Ultimately, I’m not convinced that a universal basic income
is possible without tapping the immense wealth that exists at the summit of society,
held by corporations and a tiny minority of individuals. The charity Oxfam
has famously estimated that a mere 85 people control as much wealth as half the
population of the world. And the situation is rapidly getting worse. Oxfam says
that the wealthy have captured opportunities from the poor and middle classes,
skewing the political and economic system in their favour.

Real progress will not arise through tax redistribution, through increasing tax on the wealthy, as the clamour for a basic income tacitly acknowledges. It has to go deeper than that. "If change is ever to occur," asserts Gar Alperovitz in his 2002 book, America Beyond Capitalism, "an assault must ultimately be made on the underlying relationships that have produced the inequality in the first place - especially those involving control and ownership of the nation's wealth."

One of the earliest advocates of a basic income, the French thinker, Andre Gorz, thought an unconditional income would enable people to refuse work because it would bring about "the pooling of socially produced wealth". I still think we need to concentrate on the difficult part, the socialist part, which is how to produce the pooling.

4 comments:

A more in-depth analysis of how a UBI could be financed is needed. It isunfortunate that this piece could appear to suggest we might not be ableto afford it without really considering the different modalities, whichit seemingly limits to a choice between (very high) levels of income taxand consumption taxes such as VAT.

Without going into the matter in detail two points need to be made: a)UBI must be seen as a mechanism fro redistributing income (value added)and b) the notion this is compatible with using consumption taxes aloneis untenable - so it would be highly regrettable if this suggestion wereto discredit the whole idea in advance of the Swiss referendum

Yes, a more in-depth analysis of funding is certainly needed. I'd like to read one. I agree that so-called value added needs to be tapped for funding basic income. But should that be through corporate income tax or individual income tax? And should money for basic income be ringfenced for that purpose, in the manner National Insurance used to be for social security in the UK?

An academic from Birmingham University has argued that a basic income is completely affordable within the current tax system, without any income tax rises. The money would come from savings from abolishing current social security benefits, cracking down on tax evasion and 'leakage' (multinationals paying zero tax etc) and the savings that would come from employees with a BI behind them, feeling more confident to call out environmental dumping (eg toxins in rivers) when it occurs. The examples are all from Canada but would seem to apply universally. See: http://wer.worldeconomicsassociation.org/papers/universal-basic-income-and-the-cost-objection-what-are-we-waiting-for/

Having said that looking at around a 45% basic tax rate to make the figures add up. But really the problem is political, child benefit has been cut for the more well off as it was perceived that they didn't 'deserve' it.

About Me

Capitalism is not beautiful, said John Maynard Keynes. It is not intelligent, it is not virtuous and it not just. “But when we wonder what to put in its place, we are extremely perplexed.”
This blog is about the ideologies that mask the ugliness and injustice beneath the surface. And how our perplexity might be diminished.
You can contact me at idealogically@gmail.com